Background: I live in a Hong Kong where there is 0 capital gains tax and 16.5% profit tax. My Objective: I trade quantitatively with my own capital. Since I am not working and have no credit history I would like to setup a company and employ myself as such I can create a credit/banking history for myself. I am considering trading under the name of the newly setup company, pay myself a regular salary and pay taxes on the salary I receive. My original belief is when trading via HK company. I am not liable to pay tax on the profits. However an accountant told me that since "trading" would be seen as a business operation, any profits are liable to taxes. My question is, what if the company is registered in a country where there are 0 capital gains and 0 profit tax (say BVI), employ me as the sole employee which works out of Hong Kong. Would I be liable to pay HK profit taxes? PS: Or generally how does a self employed create/maintain their own credit history such that they can still get financing from banks?
I guess you are having problems applying mortgage. I had similar experience about 10 years ago. We (my biz partner and I) had a BVI company doing some overseas IT project and paying zero HK tax. Let me highlight some points which may help you getting mortgage. 1. The company had a recurrent monthly income around 100k-200k HK dollars for about 2 years. 2. The company bank account was a "supreme" account (or whatever it is called "prestige", "premier" or "gold"). We had a customer relationship manager serving us. The key point is you need an account manager knowing you well. 3. We took money out from the bank as company dividend quarterly. 4. My partner had a "supreme" account in the same bank and he had the same customer relationship manager. He occasionally bought some retail investment product and borrowed small amount of personal loan to build his "good client status." 5. I didn't have any account in that bank. 6. Around 9 years ago, we had enough money for down payment for an apartment. 7. My partner successfully applied house mortgage with his oversea dividends as income proof although he had no local income. 8. No single bank in HK approved my mortgage application, so I had to buy a cheap apartment fully paid. Not so sure this way still works. BTW, are you local Hong Kong people? AFAIK, banks have stricter credit rules for foreigners.
Your accountant might be right. Having a registered company in BVI will not solve your problem in most countries because nowadays the place where the actual management and operational activities happen define where to pay taxes. In many coutries this means that you will be taxed personally as you do all the trading from a place outside of BVI. The BVI company is only a fiscal construction to avoid paying taxes. This is the logic that is used in many western countries now. If you want to be save with a BVI company you should really move to BVI and work on a daily base in that company. Then it will be real, all the rest is tax evasion or even tax fraude. I had the same problem in Europe and had to move to the country where i had my company for fiscal reasons. If not i risked to be taxed very heavily with additional fines on top of that. In some European countries these fines reach75% of the non declared profit.
mcdull: thanks for your info. i am a hong kong resident. i have another question for you. as described previously i trade myself and reside in HK. I trade frequently and say I make enough money to buy an apartment. Obviously i would have paid 0 tax on the profits i made. do you think the HK tax department would question how i made the money and would then classify my trading as a "business" and charge me tax on it? Its like normally you dont pay tax on profits made from property capital gains, but if you sell a property within few months of buying they will charge you. i am nobody: you company solely trades or you are running some real businesses?
HK has a territorial taxation system, you are not liable to tax on income derive outside HK. To my knowledge if you open an offshore corporation you will not have to pay HK tax on its gains http://en.wikipedia.org/wiki/International_taxation Don't take this as tax advice, consult with a laywer. I'm only saying that I don't think they have CFC rules (like the US and other anti tax haven countries) but better be safe than sorry
Daal, I checked, even as a BVI (or any other foreign company for that matter), you will have to pay HK profit tax if your operation is conducted in Hong Kong, regardless of where your company is domiciled.
Then I suppose you are out of luck, you just go to figure out if the 16.5% is worth it for you to stay in HK, otherwise you might want to move to Singapore or somewhere similar There is another solution which would involve you sending the funds to a trust or foundation which the beneficiaries are not from HK. You wouldn't be the legal owner of the funds and thus potentially wouldn't be liable to be taxed on it. But its complicated and might still carry some tail risks in it. I definitely there could be other solutions in this case because HK is not a big government US style tax collector, the US tax code is huge because they keep closing loopholes. That is not the case with HK, you just got to find the legal workarounds
If you plan to buy your apartment without mortgage, it is better to trade non-HK instruments. It doesn't matter you trade using your personal account or a BVI company account. If IRD sends a letter to you regarding your source of income, you just reply you trade xxx market. Remember to keep your broker statements. http://www.ird.gov.hk/eng/paf/bus_pft_tsp.htm Check the section "Treatment of other profits" If you need mortgage, you need the BVI company route. You open a BVI company, trade non-HK instruments. Open a "supreme" account; Take cash out from the bank quarterly; buy some structural investment products; borrow small amount of money and repay on time; build yourself a "good client status". Hopefully, you will get mortgage from the bank, but no guarantee. If you trade HK instruments, then you are in a gray area. My friends working in the accounting field said you need to pay HK tax. But, my friends working in the stock brokerages said never heard of any people paying profit tax to IRD. I had heard some HK traders how they avoid tax on trading HK instruments. They open a BVI company. They trade using ATS and their servers are located in Macau, Singapore or Switzerland. They sign a consultation contract with their own BVI company providing software development services and pay a very small amount HK tax. Overseas companies operate totally outside HK don't need to pay HK tax when trading HK instruments. HK residents don't need to pay HK tax when they receive overseas company dividends. It is a bit complicated, I think you need to consult some accountants if you do it this way.
More info from some CPA in HK. Chinese https://hk.knowledge.yahoo.com/question/question?qid=7007022600955 English translation https://translate.google.com/transl...question?qid=7007022600955&edit-text=&act=url sorry, google Chinese to English translation is shitty. Weird Chinglish. To summarize: 1. HK tax law says HK trading income is taxable. 2. IRD does not tax HK trading income if you use your personal account. They only tax company account.
thanks guys for your feedback. Mcdull, thats the conclusion I arrive at too with regards to IRD stance towards trading profits.